Fannie Mae (FNMA)

[bradford86]

what you've identified is a risk premium

common is jr to preferred.. so it is riskier, so it should trade with more potential upside potential (usually).

in an ipo, if jr pfd agree to convert at a par valuation into an ipo.

if the ipo price is $12.50, a $25 par value gets 2 shares.

as a preferred shareholder, if you think they're going to ipo and the price is going to be above $25/5.5 = $4.50 then you should consider switching to common at today's prices.

fnmas trades at a premium to everything.. it's wild. not sure why the other preferreds lag it so much. at 4:1 the less liquid preferreds forecast an ipo price of $6.25 which is why i'm not really doing much.

10:1 scenario is preferred convert to common now. then warrants are exercised. then recap. preferred get like 65 cents on the dollar. $25/1.15 = ratio of 21:1 at present.

part of the common having any upside at all is preferred getting par conversion rates... so really you're betting on:

1. moelis/blackstone/paulson/trump/mnuchin bros
2. lawsuit settlement only if preferred get par or par plus

if you can count on 1&2, then you have to look at valuations.

if you are raising $120B.. what is the value of the two companies?

if the value is $200B. $200-$34-$120 =$46M for existing warrant diluted common. or $5.11/share

$5.11 is between the two preferred ipo price estimates

200/15 = p/e of 13.

that's kind of how this math all works.